Alchemy: The Surprising Power of Ideas That Don't Make Sense

by Rory Sutherland

‘non-sense’. Behavioural economics is an odd term. As Warren Buffett’s business partner Charlie Munger once said, ‘If economics isn’t behavioural, I don’t know what the hell is.’ It’s true: in a more sensible world, economics would be a subdiscipline of psychology.

good.’ As the brilliant Robert Cialdini highlights in Influence: The Psychology of Persuasion, the principles of selling and behaviour change are imbued with contradictions.

being illogical than it is for being unimaginative. The fatal issue is that logic always gets you to exactly the same place as your competitors. At Ogilvy, I founded a division that employs psychology graduates to look at behavioural change problems through a new lens. Our mantra is ‘Test counterintuitive things, because no one else ever does.’

For a business to be truly customer-focused, it needs to ignore what people say. Instead it needs to concentrate on what people feel.

Making a train journey 20 per cent faster might cost hundreds of millions, but making it 20 per cent more enjoyable may cost almost nothing. It seems likely that the biggest progress in the next 50 years may come not from improvements in technology but in psychology and design thinking.

‘Find one or two things your boss is rubbish at and be quite good at them.’ Complementary talent is far more valuable than conformist talent.

institutional setting.fn4 We approve reasonable things too quickly, while counterintuitive ideas are frequently treated with suspicion. Suggest cutting the price of a failing product, and your boringly rational suggestion will be approved without question, but suggest renaming it and you’ll be put through gruelling PowerPoint presentations, research groups, multivariate analysis and God knows what elsefn5 – and all because your idea isn’t conventionally logical. However, most valuable discoveries don’t make sense at first; if they did, somebody would have discovered them already. And ideas which people hate may be more powerful than those that people like, the popular and obvious ideas having all been tried already. We should test counterintuitive things – because no one else will.

The following is a perfect illustration of the tendency of modern business to pretend that economics is true, even when it isn’t. London’s West End theatres often send out emails to people who have attended their productions in the past, to encourage them to book tickets, and it was the job of an acquaintance of mine who worked as a marketing executive for a theatre company to send out these emails. Over time, she learned something that defied conventional economic rules; it seemed that if you sent out an email promoting a play or musical, you sold fewer tickets if you included an offer for reduced-price tickets with the email. Conversely, offering tickets at the full price seemed to increase demand. According to economic theory, this makes no sense at all, but in the real world it is perfectly plausible. After all, any theatre selling tickets at a discount clearly has plenty to spare, and from this it might be reasonable to infer that the entertainment on offer isn’t all that good. No one wants to spend £100–£200 on tickets, a meal, car-parking and babysitting, only to find that you would have had more fun watching television at home; in avoiding discounted theatre tickets, people are not being silly – they are showing a high degree of second-order social intelligence.

Despite my friend’s discovery, her colleagues continued to demand that she discount tickets. She

fewer tickets at a lower price, but they would insist that she included a discount anyway. They persisted in acting this way because, even though it was empirically the wrong thing to do, in economic terms it sounded logical. If 30 per cent of the seats failed to sell at a discounted price, it was assumed that they would not have sold at a higher price. If, by contrast, she hadn’t offered a discount and 20 per cent of the seats had not sold, she could have been blamed. People’s motivations are not always well-aligned with the interests of a business: the best decision to make is to pursue rational self-justification, not profit. No one was ever fired for pretending economics was true.

In psychology these laws do not apply: one plus one can equal three. Later on, economists got their own version of the same depressing idea that nothing can be created or destroyed. ‘There’s no such thing as a free lunch,’ they said. The sad consequence is that no one believes in magic any more. Yet magic does still exist – it is found in the fields of psychology, biology and the science of perception, rather than in physics and chemistry. And it can be created.

We don’t value things; we value their meaning. What they are is determined by the laws of physics, but what they mean is determined by the laws of psychology. Companies which look for opportunities to make magic, like Apple or Disney, routinely feature in lists of the most valuable and profitable brands in the world; you might think economists would have noticed this by now. Wine tastes better when poured from a heavier bottle. Painkillers are more effective when people believe they are expensive. Almost everything becomes more desirable when people believe it is in scarce supply, and possessions become more enjoyable when they have a famous brand name attached.

According to research from the University of Illinois at Urbana-Champaign, descriptive menu labels raised sales by 27 per cent in restaurants, compared to food items without descriptors.

If you want to offer ease of use – and ease of purchase – it is often a good idea not to offer people a Swiss Army knife, something that claims to do lots of things.fn8 With the notable exception of the mobile phone, we generally find it easier to buy things that serve a single purpose.

Branding isn’t just something to add to great products – it’s essential to their existence.

If you want to change gear, you must move the gearstick. If you want people to work harder, you must pay them more. If you want people to give up smoking, you must tell them it kills them. If you want people to take out pensions, you must give them a tax incentive. If you want people to pay more for your product, you must make it objectively better. If you want to improve a train journey, you must make the trains faster. If you want to improve your well-being, you must consume more resources. If you want people to get better, you must give them an active drug.

the inexpensive alternative to prostitution’ – that kind of thing. They are rather like the slogans that appear throughout the film The Invention of Lying (2009),

The main value of a dishwasher, I would argue, is not that it washes dirty dishes, but that it provides you with an out-of-sight place to put them. The main value of having a swimming pool at home is not that you swim in it, but that it allows you to walk around your garden in a bathing costume without feeling like an idiot.

The Netflix documentary Sour Grapes is a fascinating insight into this world.

advertising is a hugely expensive way of conveying that you are trustworthy.

Alcohol, when you think about it, doesn’t really taste very nice: on a really hot day when you are parched, which would you honestly prefer – a glass of Château d’Yquem or a raspberry Slush Puppie?

By the same token, to someone who assumes that holidaymaking is a lifelong quest to find new experiences, returning annually to the same resort may seem ridiculous; it is on the other hand an extremely good approach if you want to avoid a bad holiday. Habit, which can often appear irrational, is perfectly sensible if your purpose is to avoid unpleasant surprises. Social copying – buying products or adopting behaviours and fashions that are popular with others – is another safe behavioural approach. After all, the bestselling car in Britain is unlikely to be terrible.

Many apparent paradoxes of consumer behaviour are best explained by similar mental mechanisms. A few years ago we discovered that men were reluctant to order a cocktail in a bar – in part because they had no foreknowledge of the glass in which it would be served. If they thought there was even a slight chance that it would arrive in a hollowed out pineapple, they would order a beer instead. One remedy was to put illustrations or pictures of the drinks on the menu; some trendy venues have since solved the problem by serving all their cocktails in mason jars. The same sort of mental calculus explains why it is so difficult to get people to move their current account from one bank to another paying a higher rate of interest, or to shift their broadband provision. A 1 per cent chance of a nightmarish experience dwarfs a 99 per cent chance of a 5 per cent gain.

In his book Risk Savvy (2014), the German psychologist Gerd Gigerenzer refers to this mental process as ‘Defensive Decision-Making’ – making a decision which is unconsciously designed not to maximise welfare overall but to minimise the damage to the decision maker in the event of a negative outcome.

few years ago, the British chocolate manufacturer Cadbury’s received a large number of customer complaints, claiming that they had changed the taste of their Dairy Milk brand. They were at first baffled, because the formulation hadn’t been altered for years. However, what they had done was change the shapes of the blocks you would break off a bar, rounding their corners. And smoother shapes taste sweeter. Truly.

Languages that are similar may be prone to greater misunderstandings – in Latin American countries, for instance, Spanish words may take on different meanings: ‘Your wife is a tremendous whore’ would seem an odd way to thank your host after dinner, except that in some countries, the formal word for ‘hostess’ has acquired that meaning.

Eventually the Dutch compiled a sort of phrasebook, which translates British English into Dutch English.

In both cases, the strategy was a commercial disaster. People didn’t want low prices – they wanted concrete savings. One possible explanation for this is that we are psychologically rivalrous, and like to feel we are getting a better deal than other people. If everyone can pay a low price, the thrill of having won out over other people disappears; a quantifiable saving makes one feel smart, while paying the same low prices as everyone else just makes us feel like cheapskates.

Five years ago, we received a worried phone call from Belgian colleague. One of their largest biscuit manufacturers had replaced their most popular brand with a new, lower-fat variant, but as soon as they released it onto the market, sales plummeted. They were bamboozled; they had performed extensive research and testing and many people could notice no difference in the taste of the new biscuit, and yet no one was buying the new version. This was one of those problems which I was able to solve without even leaving my chair. ‘I see,’ I said over the speakerphone, ‘And did you put “Now with lower fat” on the packaging of the biscuits?’ ‘Of course we did!’ they replied. ‘We’d spent months reducing the fat content of the biscuits – what’s the point of doing that if you don’t tell people about it?’ ‘There’s your problem,’ I said. ‘It doesn’t matter what something tastes like in blind tastings, if you put “low in fat” or any other health indicators on the packaging, you’ll make the contents taste worse.’

Daniel Kahneman, along with Amos Tversky, is one of the fathers of behavioural economics;

Behaviour comes first; attitude changes to keep up.

Misbehaving (2015), when he describes what happened when the University of Chicago

Imagine if cheap airlines instead claimed: ‘We’re just as good as British Airways, but at a third of the price.’ Either nobody would believe them, or else such a claim would raise instant doubts: ‘Maybe the only reason they’re cheaper is because they don’t bother servicing the engines or training the pilots, or because the planes are scarcely airworthy.’ So, marketing can not only justify a high price but it can also detoxify a low one. Make something too cheap without sufficient explanation and it simply might not be believable – after all, things which seem too good to be true usually are.

We are a herd species in many ways: we feel comfortable in company and like to buy things in packs. This is not irrational – it is a useful heuristic that helps avoid catastrophe. Antelope might be able to find slightly better grass by escaping their herd and wandering off on their own, but a lone one would need to spend a large proportion of its time looking out for predators rather than grazing; even if the grass is slightly worse with the herd, they are able to safely spend most of their time grazing, because the burden of watching for threats is shared by many pairs of eyes rather than one.

I persuaded my father to pay for TV at the age of 82, simply by reframing the cost. He begrudged paying £17 a month for a satellite television package – it seemed like a waste of money to him. However, when I pointed out that £17 each month worked out to around 50p a day and he already spent £2 each day on newspapers, everything changed. As 50p a day rather than £17 a month,fn3 the same cost seemed perfectly reasonable.

ALCHEMY LESSON SIX: DARE TO BE TRIVIAL The combination of 28 words and a button in the below picture has been called ‘the $300m button’, and is frequently cited in articles about web design and user experience. It first appeared on an unnamed retail website, which many experts believe to be Best Buy. ‘The $300m button’. In fact, monumental effects of this kind are surprisingly common in web design. Perhaps one of the first rules of interface design is ‘don‘t try to be logical’. Jared Spool, the creator of the button, describes the form that customers from the website previously encountered when they came to complete a purchase: ‘The form was simple. The fields were Email Address and Password. The buttons were Login and Register. The link was ‘Forgot Password’. It was the login form for the site. It’s a standard form users encounter all the time. How could they have problems with it? [But] we were wrong about the first-time shoppers. They did mind registering. They resented having to register when they encountered the page. As one shopper told us, “I’m not here to enter into a relationship. I just want to buy something.” Some first-time shoppers couldn’t remember if it was their first time, becoming frustrated as each common email and password combination failed. We were surprised how much they resisted registering. Without even knowing what was involved in registration, all the users that clicked on the button did so with a sense of despair. Many vocalised how the retailer...

Remember, if you never do anything differently, you’ll reduce your chances of enjoying lucky accidents.

The overly simplistic model of advertising assumes that we ask ‘What is the advertisement saying?’ rather than ‘What does it mean that the advertiser is spending money to promote his wares?’, even though we clearly use social intelligence to decode the advertising we see. An example that emphasises the significance of our interpretation of information occurred in eastern Europe under communism; when a product was advertised there, demand often went down. This was because under communism anything desirable was in short supply, so people inferred that the government would only promote something that was of such hopelessly crappy quality that people wouldn’t be willing to queue for it. Or imagine you have two products for sale. Product A appears to offer more features than Product B, and is also offered at a lower price. To an economist, the decision is easy: with a higher utility and a lower cost, everyone should buy Product A. However, since a customer is making the decision without perfect knowledge of the two products and their reliability, they might assume that there must be a reason why the price of the ostensibly superior Product A is not higher. The most likely outcome, I suspect, would be for them to buy neither. Whatever economic logic might dictate, the manufacturer of Product A would be better off asking for a slightly higher price than the manufacturer of Product B. This is not irrationality – it is second-order social intelligence applied to an uncertain world....

Soap was sold on its ability to increase your attractiveness more than on its hygienic powers, and while it contained many chemicals that improved hygiene, it is worth remembering that it was also scented to make it attractive – supporting the unconscious promise of the advertising rather than the rational value of the product. The scent was not to make the soap effective, but to make it attractive to consumers.